Commission on Revenue Allocation CRA

Open. Accountable. Responsible

Contents

Introduction

Unlike other Commissions, the Commission on Revenue Allocation CRA, appears not to have much authority under the Constitution of Kenya 2010 beyond recommending to Parliament and county governments on the formula to be used in the sharing and use of revenue.

The CRA is led by a Chair and seven Commissioners all of whom are financial and economic experts. The same skills are expected of its secretariat.

Introduction

The New Constitution provides for a limited form of devolution. This means that some of the functions previously performed by the central government have been assigned to county governments and therefore, some revenue from the center must be allocated to the counties.

The key questions that must be addressed in revenue allocation are how much of national revenue will be allocated to the counties, and in what proportions. The determination of the formular to be used in the sharing of this revenue constitutes the main functions of the Commission on Revenue Allocation, CRA.

Although the recommendations of the CRA are majorly of a technical nature, they cannot not be made unilaterally or in ignorance of history or prevailing political discourse, given that the sharing of revenues is by its very nature, a major part of every political system the world over. Hence the Commission's proposals for allocation are guided by a legislative framework enacted mostly by (the Senators) politicians in their capacity as representatives of the people of the counties.

The CRA and the Senate must therefore maintain a close working relationship:

217. (1) Once every five years, the Senate shall, by resolution, determine the basis for allocating among the counties the share of national revenue that is annually allocated to the county level of government.

(2) In determining the basis of revenue sharing under clause (1), the Senate shall— (b) request and consider recommendations from the Commission on Revenue Allocation;

Indeed the CRA must also liaise with other political players, namely the members of the National Assembly, and all county authorities - through the regular submission of its reports and recommendations:

216. (5) The Commission shall submit its recommendations to the Senate, the National Assembly, the national executive, county assemblies and county executives.

Not to be left out are National Budget technocrats including the Treasury and the National Assembly's Budget and Appropriations Committee who must build and maintain strong and transparent links with the CRA in order to deliver to the Kenyans, a thorough and acceptable Division of Revenue Bill, every financial year.

16. Despite Article 217 (1), the first and second determinations of the basis of the division of revenue among the counties shall be made at three year intervals, rather than every five years as provided in that Article.

This review is important for two main reasons. The first is that it aids the learning process of the Commission and the Country as a whole. This reason informed a key change in the formula it proposed for the 2015/2016, 2016/2017, and the 2017/2018 financial year. In it, the CRA proposed in November 2014, a reduction of the shares previously allocated to Poverty and to Fiscal Responsibility, and instead to apportion two new measures it called Personnel Emoluments and Development Factor as given in the Figure 2 below. To aid the reader's understanding, I have included the first revenue sharing formula that was used for three financial years starting from 2012/2013.

Figure 1: The First Revenue Sharing Formula

Figure 2: The Second Revenue Sharing Formula

Source: CRA

The Commission explained that the Personnel Emolument share was to be given to those Counties that inherited bloated wage bills and personnel numbers from the defunct local authorities under the old constitution. On the other hand, the Development Factor was introduced in line with best practices where a sectoral approach to allocation is envisaged in future in order to balance between service delivery and the (politically hot potato) principal of wealth redistribution. This factor is expected to eat into the population and poverty allocations which the CRA admitted are not based on solid data within Counties.

The second reason necessitating a review of the allocation formula is that some of the data used in determining the equitable shares such as population, fiscal responsibility, and poverty levels is not a fixed amount and is bound to change with time. For instance with regard to population, the CRA relied on 2009 Census data for its computations during 2012/2013, 2013/2014 and 2014/2015 financial years - data that would obviously be in serious need of updating by 2015 and which cannot wait for the next population census scheduled for 2019. Similarly, old data dating as far back as 2005 was used to calculate poverty levels.

Authority

The Commission on Revenue Allocation, CRA is a constitutional commission under the Constitution of Kenya 2010. Chapter 12 - Public Finance, Part 4 - Revenue Allocation:

The CRA is authorised to set out the framework which defines marginalised areas as such and hence the formulae used to determine resource apportionment to those areas:

216. (4) The Comission shall determine, publish and regularly review a policy in which it sets out the criteria by which to identify the marginalised areas for purposes of Article 204 (2).

Roles and Functions

As its name suggests, the greater work of the CRA is to recommend how national revenue will be shared between the central government and the 47 County Governments:

216. (1) The principal function of the Commission on Revenue Allocation is to make recommendations concerning the basis for the equitable sharing of revenue raised by the national government–– (a) between the national and county governments; and (b) among the county governments.

In other words, the CRA is required to advise and make recommendations to Parliament each time a Bill seeking to withdraw and use money from the Equalization Fund is tabled in either House. Chapter 12 - Public Finance, Part 1 - Principals and Framework of Public Finance, excerpts:

204. (4) The Commission on Revenue Allocation shall be consulted and its recommendations considered before Parliament passes any Bill appropriating money out of the Equalisation Fund.

This ranks the Commission at the very top in importance especially on matters to do with Public Finance under the Constitution.

Thus, the people of Kenya expect teamwork and regular consultations to prevail between the CRA and Parliament during the entire process of the determination of revenue allocations:

205. (1) When a Bill that includes provisions dealing with the sharing of revenue, or any financial matter concerning county governments is published, the Commission on Revenue Allocation shall consider those provisions and may make recommendations to the National Assembly and the Senate.(2) Any recommendations made by the Commission shall be tabled in Parliament, and each House shall consider the recommendations before voting on the Bill.

It is therefore quite clear that the spirit and intentions of the Constitution were to sufficiently empowered the CRA to temper and to guard against unequal and inequitable sharing of resources whether they be between the National Government and the County Governments, or among the county governments, given that resource allocation is a political process as mentioned earlier. Hence the Commission has a cardinal duty to moderate impartially on such Bills to ensure the fair and equitable allocation of resources.

Indeed, the Commission has come under sharp rebukes by some experts due to its perceived reluctance to enter the national debate on the proposed referendum call by sections of the political elite and civil society to raise the minimum share of national revenue that should go the county governments each year from the current constitutional 15% to 45%. To quote Kiriro wa Ngugi, "The Pesa Mashinani initiative by governors is also unconstitutional for very diﬀerent reasons. Those promoting this initiative have, in eﬀect, illegally usurped the functions of the Commission for Revenue Allocation as set out at Article 216.

"Incredibly, even the commission itself is constrained on how to go about its work. It is actually baﬄing that Mr Micah Cheserem and his team are sitting by watching a band of politicians take over their constitutional mandate without a ﬁght! We should expect the Commission for Revenue Allocation to protect their constitutional mandate, in court if necessary. The bottom line is that the determination of the amounts to be allocated to counties and among counties is a professional undertaking that requires very demanding and speciﬁc core competences that our governors do not possess." (Daily Nation, September 2014).

This important mandate of the CRA cannot be overemphasised when one bears in mind that quite often, the interests of either House of Parliament may on occasion be heavily laden with political and emotional biases making them prone to hijacking by unbriddled political interests as the referendum calls appear to suggest.

It is the hope of this author that in the event that the referendum process gets to the floor of each of the 47 County Assemblies as required by the Constitution, the CRA will rise to the occasion and advise the Assemblies on the soundness or otherwise of the proposed 45 percentage share of devolved funds.

Aware of the central role that matters of Public Finance play in the political stability and national cohesion of any country, the drafters of the Constitution of Kenya 2010 ensured that the CRA would be the only Commission expressly permitted to have one of its Commissioners attend sittings of the Commission on the Implementation of the Constitution, CIC, ostensibly to249. (1)(a)"....... protect the sovereignty of the people;(b) secure the observance by all State organs of democratic values and principles; and (c) promote constitutionalism. Excerpts from Article 5 of the Sixth Schedule of the Constitution of Kenya, 2010:

(5) After the Commission on Revenue Allocation has been established, the Commission for the Implementation of the Constitution shall send a notice of its meetings to that Commission, and a member of the Commission on Revenue Allocation shall be permitted to attend and participate in any such meeting, ....... .

Beyond a wide legislative mandate of regularly reviewing the sharable amounts to county (devolved) governments, the CRA will also play an active role in the enhancement of the rules and regulations governing the management of Public Finance applicable in the 47 regional governments:

216. (2) The Commission shall also make recommendations on other matters concerning the financing of, and management by, county governments, as required by this Constitution and national legislation.

What is more, the CRA must develop unquestionable capacity to effectively advise County Governments on their fund-raising and budget planning processes:

(3) In formulating recommendations, the Commission shall seek–– (a) to promote and give effect to the criteria mentioned in Article 203 (1); (b) when appropriate, to define and enhance the revenue sources of the national and county governments; and (c) to encourage fiscal responsibility.

To do this effectively, the Commission must enhance its data collection capacity especially in the Counties, so that any advise it gives out to a County government is tailor-made (reliable, accurate, and current) for that county.

Composition

Micah Cheserem, Chairperson of the CRA

The membership of this Commission is made up of representative of interest groups or stakeholders and a representative of the national executive:

215. (2) The Commission shall consist of the following persons appointed by the President— (a) a chairperson, who shall be nominated by the President and approved by the National Assembly; (b) two persons nominated by the political parties represented in the National Assembly according to their proportion of members in the Assembly; (c) five persons nominated by the political parties represented in the Senate according to their proportion of members in the Senate; and (d) the Principal Secretary in the Ministry responsible for finance.

At the time of the constitution of the CRA in 2011, Kenya did not yet have a Senate and hence the National Assembly nominated a total of seven persons to the Commission. Clearly, as we noted in the introduction, political interests will play out in the workings of this Commission. All the seven Commissioners nevertheless, must be people with long technical experience in matters of finance and economics:

215. (4) To be qualified to be a member of the Commission under clause (2) (a), (b) or (c), a person shall have extensive professional experience in financial and economic matters.

References:

1. Constitution of Kenya, 2010. National Council for Law Reporting. The Attorney General.